Dollar bills 370.
(photo credit: Steve Marcus / Reuters)
I received a lot of flak from my column last week about women taking control of
their finances after a divorce. The crux of the complaints centered not on the
column itself but rather the timing. “After all, we are in the middle of wedding
season; why are you talking about divorce?” was the most common refrain. So to
the many readers who voiced their complaints, and especially to my sister who is
busy planning for her daughter’s wedding, I offer my apologies and will devote
this week’s column to tips for newlyweds.
Plan for disaster
Back in April I penned an
article “Financial I do’s for newlyweds,” and I received many calls from parents
of children of marriageable age, and newly married couples themselves, asking
for meetings to help advise them in setting up their new home in a financially
correct fashion. I happily set up meetings with those interested and felt that I
should dedicate another article to this topic, with some generally useful tips
for the newly married.
How often do we hear appeals to
help support a family where the husband passed away at a young age, and the
family is totally broke.
While this tragedy pulls at our heartstrings, in
many cases it can be avoided. There is nothing farther from a new couple’s mind
than planning for the worst-case scenario.
With their minds set on
building a new home, no one wants to think about the potential death of one of
the spouses. Talking about insurance isn’t very exciting, but not talking about
it is very dangerous and could lead to bankruptcy.
It’s dangerous because
if you don’t have the right kind of coverage when disaster strikes, you can be
lead into financial ruin.Life insurance
The only real reason that you
need life insurance is if someone is dependent on the income that you bring
home. Children, a spouse, or even an elderly parent – if they depend on you,
then you owe it to them to take out a policy. The question I hear frequently
regards how large a policy to take. While there are no hard-and-fast rules, I
like to use the rule of 20. This says that you take your annual expenses and
multiply it buy 20 years. For example if your annual expenses are $30,000,
multiply that buy 20 and you get to $600,000. So you would get a life-insurance
policy that would pay a $600,000 benefit. The reason I like this rule is that
you can set up an investment portfolio that will potentially enable you to
generate the income needed without too much capital risk.How much to
spend on rent
Another question commonly asked regards how much to spend on
either rent or a mortgage. I often see young couples swimming in debt because
they are living in apartments way above their means. A general rule is to
allocate up to a third of your take-home income to rent or mortgage payments,
with the ability to go up to 40 percent. As rent or mortgage payments account
for the highest percentage of expenses for a new couple, if you go ahead and
rent an apartment that you allocate a high percentage of your income to, there
won’t be anything left for other basic needs; i.e., food, utilities,
transportation.Stay away from the car
It all starts after the wedding.
The new couple has a few weeks off and they decide to travel around Israel, and
the easiest way is by renting a car. They have a blast with the car and become
addicted to it. Then real life sets it and the couple goes back to either
walking or taking the bus. A few months later they have a wedding out of town,
and they have to take two buses to get to the wedding, it’s raining outside and
they get soaked. They fondly remember the convenience of having that rental car,
and they decide they are going to buy a new car.
Only problem is they
don’t have the NIS 100,000, so they take a loan. Ultimately, they are not making
enough money to pay off the loan, and they sink further and further into
of your future Sit down with your new spouse and make a
list of your short- and long-term goals. Understand your expenses and if you are
able to cover them. Then it’s best to sit down with an adviser to help map out a
course of action to enable you to reach those goals.
Buy living within
your means and planning for the future, your chances of building a financially
stable home will greatly improve.
email@example.com Aaron Katsman is a licensed financial adviser in
Israel and the United States who helps people with US investment accounts.
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